The article examines how stable inflation rates and strong creditor rights lead to more developed local bond markets with less reliance on foreign-currency-denominated bonds. Countries with less developed bond markets tend to have high variance and negative skewness in returns, which U.S. investors tend to avoid. However, U.S. investors seem to avoid diversifiable idiosyncratic risk in these markets. Overall, creditor-friendly policies can kickstart local bond market development, leading to the growth of derivatives markets and attracting foreign investors.